Bethel Finance: No buyers for 83% of land tenders in January

www.bethelfinance.com
It is a shame that the Israel Land Authority does not publish figures about failed land tenders. A review of tenders published in January and February found that of the lots zoned for 4,497 apartments offered, only lots zoned for 762 were actually sold. A study by the Real Estate Appraisers Association in Israel for "Globes" found 83% of the housing units offered in tenders failed. Most of the failures were in the periphery, including tenders in Dimona, Arabeh, Gedera, Migdal Ha'Emek, Yeruham, Kiryat Gat, and Tiberias.

The problem is that the land marketed does not meet the real needs of Israel's current population dispersal on one hand, or real estate demand, which is centered on central Israel, on the other.

Land marketing policy should be intelligent and meet demand on the basis of location of the target population. Instead, the Land Authority markets land where it can - where there is state land available for sale. A better perspective of the failure of this method is the lack of response by contractors and homebuyers alike, who are in no hurry to leave their current residence for the country's periphery.

The concept ostensibly behind the Land Authority's goal is to develop the periphery, to strengthen the north and south at the expense of Tel Aviv, Haifa, and Jerusalem. This concept holds that higher demand in the periphery will attract quality homebuyers with reasonable prices, ease pressure in high demand areas, and, in the long-term, lower prices in these areas.

This concept is doomed to failure. Firstly, studies show that people do not leave their area of residence when they buy a bigger home. It is therefore necessary to increase the supply of homes proportionately to the population of each district. The demand-supply ratio is balanced in some districts, but here too, policy studies should be the level of towns and the needs of their residents in terms of natural growth and potential for expansion.

Secondly, without the development of transport, health, and education infrastructures, not to mention jobs, culture, and entertainment, in the periphery there is no chance for the Land Authority's concept to succeed. Such development requires budgets and collaboration between ministries to attract companies and organizations to move from their current locations.

Thirdly, there is a reason why building and marketing is limited in high demand areas, such as Tel Aviv, Haifa, and Jerusalem. They are densely populated, with few to no land reserves. These three districts account for 40% of Israel's population, and 24,000 housing units of the total shortfall of 60,000 units. On top of this is Israel's 2% natural population growth rate. So long as there is a housing shortage in the districts with the highest prices, there will no meaningful decline in home prices in either the short or long terms.

Fourthly, if the Land Authority's plans succeed, and the periphery is flooded with apartments and home prices there fall - neither of which is happening now - then the price differential between low-cost and expensive homes will widen and lower prices for second-hand homes. People seeking to buy better homes, which account for 60% of the real estate market, will get less for their homes, and will not be able to meet the higher prices for new ones. The government must therefore create a mix of apartments for all segments of the population.

Real Estate Appraisers Association says that the solution is primarily in a nationwide vacate-and-build plan to provide incentives for both contractors and homeowners. Since there is no available land in high demand areas, this is the only way to greatly increase the housing supply in them. Part of such a plan should include converting office and industrial properties to rental residential properties, and not the luxury apartments currently planned for some of these properties. The strategic location of these properties, the infrastructures in their environs, and the renovations needed are fairly simple to carry out, and could greatly increase the housing supply in a short time because the buildings already exist.

Clearing the housing bottleneck in high demand areas will spread to the periphery and balance housing demand nationwide. This is also the right way to prevent future rises in home prices.